agenda item 2 · 2021. 1. 16. · agenda items presented item 2 — discussion memorandum and...

ASB Meeting January 16-19, 2018

Prepared by: L. Delahanty (December 2017) Page 1 of 45

Agenda Item 2

Reporting on ERISA Plan Financial Statements

Discussion Memorandum and Issues Paper

Objective

To provide the ASB with feedback from the comment letters and obtain direction from the ASB relating to

certain issues from the exposure draft.

EBP Task Force

The Employee Benefit Plan Reporting Task Force (the EBP task force) members are:

Darrel Schubert (Chair)

Josie Hammond

Tracy Harding

Jerry Murray

Scot Philips (TIC representative)

Alice Wunderlich

Michael Auerbach and Lynne McMennamin (DOL observers)

Background

In April 2017, the proposed Statement on Auditing Standards Forming an Opinion and Reporting on

Financial Statements of Employee Benefit Plans Subject to ERISA was released for public comment. The

exposure draft contained nine “Issues for Consideration” in which the ASB asked for specific feedback.

The public comment period on the proposed SAS was extended from the original August 21, 2017 deadline

to September 29, 2017.

At the October 2017 ASB meeting the task force presented preliminary results from the comment letters

and asked the ASB for direction on certain topics. The ASB provided the task force with direction for the

following “Issues for Consideration” from the exposure draft: (a) Issue 1— Required Procedures When an

ERISA-Permitted Audit Scope Limitation is Imposed (the ASB supported continuing to include required

procedures in the proposed SAS relating to the certified information and asked the task force to reconsider

the procedures to be required); (b) Issue 2— The Form and Content of the Auditor’s Report on ERISA Plan

Financial Statements with the ERISA-Permitted Audit Scope Limitation (the ASB continued to support

developing a new type of report for the ERISA-permitted audit scope limitation); and (c) Issue 6—

EBP Reporting – Discussion memo ASB Meeting, January 16-19, 2018

Agenda Item 2 Page 2 of 45

Certain Requirements for Audits of ERISA Plan Financial Statements and Related Required

Report on Specific Plan Provisions Relating to the Financial Statements (the ASB generally agreed

that the findings from the testing of certain plan provisions should not be required to be

communicated in the auditor’s report).

The following is a list of the topics from the exposure draft being discussed as part of this

discussion memorandum. The task force intends to bring further discussion of Issue for Consideration 6

to the May 2018 ASB meeting.

Agenda Items Presented

Item 2 — Discussion Memorandum and Issues Paper

Item 2A — Comment Letter Responses to Issues for Consideration 1—Required Procedures

When an ERISA-Permitted Audit Scope Limitation is Imposed

Item 2B — Comment Letter Responses to Issues for Consideration 2—The Form and Content

of the Auditor’s Report on ERISA Plan Financial Statements with the ERISA-

Permitted Audit Scope Limitation

Item 2C — Comment Letter Comments to Paragraphs 117-118 and Related Application

Material Relating to Reporting on Supplemental Schedules

Item 2D — Comment Letter Responses to Issues for Consideration 4—Required Emphasis-of-

Matter Paragraphs

Item 2E — Comment Letter Responses to Issues for Consideration 7—Require Procedures

Relating to the Form 5500

Mr. Schubert will refer to the Agenda Item 2 in leading the discussion.

Topic Related Materials

Issue 1— Required Procedures When an ERISA-

Permitted Audit Scope Limitation is Imposed

Issue 1

Appendix A

Issue 2—The Form and Content of the Auditor’s

Report on ERISA Plan Financial Statements with the

ERISA-Permitted Audit Scope Limitation

Issue 2

Appendix B

Reporting on ERISA Required Supplemental

Schedules

Issue 3

Issue 4—Required Emphasis-of-Matter Paragraphs Issue 4

Issue 7—Required Procedures Relating to the Form

5500

Issue 5



Issues for Discussion with the ASB

Issue 1: Required Procedures When an ERISA-Permitted Audit Scope

Limitation is Imposed

Exposure Draft Issues for Consideration

Issue 1— Required Procedures When an ERISA-Permitted Audit Scope Limitation is

Imposed

Respondents were asked to provide their views on whether

the procedures and guidance will achieve the objectives of enhancing execution and consistency in these engagements and if not, why; and

any procedures that should be required are missing, and if so, describe them.

The procedures included in the proposed SAS were based on the procedures from the AICPA

Audit and Accounting Guide, Employee Benefit Plans (EBP AAG). Those procedures were

discussed with the Audit Issues Task Force in 2007 and therefore were not heavily redeliberated

as part of this project.

Comment Letter Results

63 of the 108 comment letters specifically responded to the questions in Issue 1. Of the 63 who

responded, 31 supported the proposed SAS and 17 supported the proposed SAS with concerns.

The task force viewed this as 76% showing support for including the procedures relating to the

certified information in the proposed SAS.

See Agenda Item 2A for the detailed comment letter responses.

The following is a summary of the results.

Issue 1 # responses out of 63 Percentage of those who

responded

Supportive 31 49%

Supportive with concerns 17 27%

Not Supportive 15 24%

October 2017 ASB Meeting

The task force noted that many of the respondents expressed concerns with some of the procedures,

particularly as they relate to the auditor’s responsibilities relating to fair value disclosures for the



certified information. At the October 2017 ASB meeting, the ASB supported redeliberating the

procedures relating to the certified information relative to the type of opinion required to be issued.

Subsequent Task Force Discussions

Subsequent to the October ASB meeting, the task force held four teleconference meetings to

discuss the required procedures included in the exposure draft relating to the ERISA-permitted

audit scope limitation. The task force discussed the history of the procedures currently included in

EBP AAG. The task force noted that the guidance in the 1991 EBP AAG was revised in 1994 and

then again in 2005 and 2008. The procedures in the 2008 EBP AAG were approved by the AITF

in 2007. The procedures from the 2008 EBP AAG have not been changed and are reflected in the

2017 edition of the EBP AAG. The task force challenged the need for the additional procedures

that have been added subsequent to the 1991 EBP AAG and discussed concerns about the intent

of regulations when ERISA permitted the audit to be restricted. See appendix A to this discussion

memorandum for excerpts from the prior EBP AAGs that highlight the changes that have evolved

over time.

Recharacterization of the Limited-Scope Audit to an ERISA-permitted Special Purpose Audit

The task force discussed the use of the term “limited scope audit” in the exposure draft and noted

that many respondents had difficulty embracing a new form of report because they consider the

ERISA-permitted scope limitation to be a scope limitation that should be assessed in accordance

with AU-C section 705 Modifications to the Opinion in the Independent Auditor’s Report. The

task force considered the nature of the restriction on the audit and believe that the special nature

of such a restriction is not specifically contemplated by AU-C section 705 and therefore the task

force is recommending that the terminology used to refer to these special audits be changed to

“ERISA-permitted special purpose audit” rather than “ERISA-permitted audit scope limitation.”

The task force believes that recharacterizing the nature of such engagements to be that of an

ERISA-permitted special purpose audit will help users to better understand the nature of such

engagements. Accordingly, these materials use the term “ERISA-permitted special purpose audit.”

Proposed Revisions to the Exposure Draft

Based on the discussions at the October 2017 ASB meeting, comment letter comments received,

and consideration of the changes made over the years to the procedures in the EBP AAG, the task

force determined that the procedures currently contained in the EBP AAG go beyond that which

should be performed as part of the ERISA-permitted special purpose audit because those

procedures may erode the benefit of the ERISA exception. For example, the task force believes

that the auditor should not be responsible for evaluating whether the form and content of the

financial statement disclosures relating to the certified investment information is in accordance

with the applicable financial reporting framework because the auditor is instructed not to audit

such information.

The task force is proposing the following changes to paragraphs 20-21 of the proposed SAS and

related application material. (Note: the following table has been marked to reflect changes from

the exposure draft).



Procedures When Performing an ERISA-

Permitted Special Purpose Audit Scope

Limitation is Imposed

Procedures When Performing an ERISA-Permitted

Special Purpose Audit (Ref. par. 20)

20. 20. When management imposeselects to

have an ERISA-permitted scope limitation on

thespecial purpose audit, the auditor should

perform audit procedures on the information not

covered by the certification, including

noninvestment-related information and

investment information not covered by the

certification, based on the assessed risk of

material misstatement. Plans may hold

investments, only a portion of which are

covered by a certification by a qualified

institution. In that case, the auditor should

perform auditing procedures on the investment

information that has not been properly certified.

The auditor should also perform the following

procedures on the certified investment

information: (Ref. par. A42–A43)

A42. Performing an ERISA-permitted special

purpose audit of ERISA plan financial statements

when management imposes a limitation on the

scope of the audit as permitted by ERISA does not

eliminate the needrequirement for the auditor to

plan and perform the audit in accordance with

GAAS. Such limitation on the scope of theERISA-

permitted special purpose audit is unique to EBPs

and differs from theis not considered a scope

limitationslimitation as discussed in AU-C section

705. Unlike other scope limitations, when the

scope of the audit is limited as permitted by

ERISA,705 because the auditor is required to

perform certain audit procedures on the certified

investment information even though the scope of

the audit is limited.

A43. he need to perform audit procedures based on

the assessed risk of material misstatement for

noninvestment-related information (for example,

benefit payments, employer or employee

contributions, and accruals) and investment

information not covered by the certification is the

same for all ERISA plans, regardless of whether

management imposes an ERISA-permitted audit

scope limitation.

a. obtain from management and read the certification particularly as it relates to

investment related information prepared

and certified by a qualified institution;

(Ref. par. A44–A45)

A44.43. The qualified institution may certify all

activity of the plan. As discussed in paragraph A8,

the ERISA-permitted special purpose audit scope

limitation, and corresponding required procedures

in paragraph 20, extendsextend only to investment

information certified by the qualified institution.

The auditor is required to perform audit procedures

to obtain sufficient appropriate audit evidence on

the noninvestment related information and the


certification in order to form an opinion on the

ERISA plan financial statements.

A45.44. Although the certification provides audit

evidence, it does not provide sufficient appropriate

audit evidence on its own. Rather, it is considered



part of audit evidence relating to the certified

investment information when determining whether

the form of opinion required by paragraph 30 can

be used.

b. evaluateInquire of management’s assessment of whether about how it

determined that the entity issuing the

certification is a qualified institution under

DOL rules and regulationsand that the

certified information is complete and

accurate;

c. compare the certified investment information with the related information

includedpresented and disclosed in the

ERISA plan financial statements and

related disclosuressupplemental

schedules; (Ref. par. A46)

A46.45. Comparing the certified investment

information by agreeing andor reconciling to the

amounts included in the ERISA plan financial

statements and related investment disclosures also

includes the investment information included in

the ERISA supplemental schedules. To the extent

that the investment information in the ERISA plan

financial statements and related disclosures and

supplemental schedules cannot be agreed to or

derived from the certified information, appropriate

audit procedures would need to be performed on

such information.

d. evaluate whether the form and content of

the ERISA plan financial statement

disclosures related to the information

prepared and certified by a qualified

institution are in accordance with the

applicable financial reporting framework.

(Ref. par. A47–A48)

A47. When management limits the scope of the

audit as permitted by ERISA, the auditor has no

responsibility to test the information related to

assets held for investment of the plan that has been

certified by the qualified institution. However, the

auditor may need to understand the types of

investments held by the plan to evaluate whether

the form and content of the ERISA plan’s financial

statement disclosures for those investments are in

accordance with the applicable financial reporting

framework.

21. Regardless of whether an ERISA-permitted

special purpose audit is performed, the auditor

should also perform the necessary procedures to

become satisfied that received or disbursed

amounts (for example, contributions and

benefit payments) reported by the trustee or

custodian were determined in accordance with

the plan provisions (also see paragraph 15);

A48. The following are examples of procedures

that may help the auditor evaluate whether the

financial statement disclosures for the ERISA plan

are appropriate in the circumstances:

a. Obtain an understanding, through inquiry

of management and inspection of

supporting documentation, of the types of

investments held by the ERISA plan and



the methodology for measuring those

investments

b. Inquire of management whether the

investments included in the certification

are measured, presented and disclosed in

accordance with the applicable financial

reporting framework as of the appropriate

date.

c. Inquire of management about how

investments at fair value are leveled in the

fair value hierarchy table

d. Consider the appropriateness of the

classification of investments by

management in the ERISA plan financial

statements.46. The requirement to

perform audit procedures based on the

assessed risk of material misstatement for

noninvestment-related information (for

example, benefit payments, employer or

employee contributions, and accruals) and


certification is the same for all ERISA

plans, regardless of whether an ERISA-

permitted special purpose audit is

performed.

21. 22. If, as part of the audit procedures

performed, the auditor becomes aware that the

certified investment information is incomplete,

inaccurate, or otherwise unsatisfactory, the

auditor should perform further inquiry, which

might result in additional audit procedures or

modification to determine the auditor’s opinion

in accordance with AU-C section

705.appropriate course of action. (Ref. par.

A47–A49)

A47. The additional procedures may result in a

modification to the auditor’s opinion in

accordance with AU-C section 705. The auditor

may want to consider the implications such

additional procedures may have on the nature,

timing, and extent of other audit procedures

including consideration for the engagement letter

and risk assessment.

A48. If the auditor becomes aware that adequate

year-end valuation procedures have not been

performed, and, therefore, the financial statements

may not be prepared in accordance with the

applicable financial reporting framework, it is

important for the auditor to communicate those

findings to the plan administrator. It is the plan

administrator’s responsibility to prepare the

financial statements and disclosures in conformity

with the applicable financial reporting framework



and in conformity with DOL rules and regulations.

Accordingly, the plan administrator may request

the trustee or custodian to recertify or amend the

certification

a. for such investments at their appropriate

year-end values or

b. to exclude such investments from the

certification.

A49. If the trustee or custodian amends the

certification to exclude such investments from the

certification, the plan administrator is responsible

for valuing such investments as of the plan year-

end and engaging the auditor to perform audit

procedures on the investments excluded from the

certification.

A50. If the certification is not amended, it is the

plan administrator’s responsibility to determine

whether the financial statements and disclosures

related to such investment information are

prepared in accordance with applicable financial

reporting framework and in conformity with DOL

rules and regulations.

A51. In addition, the AICPA Audit and

Accounting Guide Employee Benefit Plans

contains guidance when it comes to the auditor’s

attention that the required supplemental schedules

are omitted, do not contain all required

information, or contain information that is

inaccurate or inconsistent with the financial

statements.

Action Requested of the ASB

1. Does the ASB agree with recharacterizing the limited scope audit to that of an ERISA-permitted special purpose audit?

2. The ASB is asked for feedback on the proposed changes to paragraphs 20-21 and related application material.



Issue 2: The Form and Content of the Auditor’s Report on ERISA Plan

Financial Statements with the ERISA-permitted Audit Scope Limitation


Issue 2—The Form and Content of the Auditor’s Report on ERISA Plan Financial

Statements with the ERISA-permitted Audit Scope Limitation

Respondents were asked to provide feedback on whether the form and content of the

proposed auditor’s report, including the form and proposed content of the new form of

opinion

provide improved transparency with respect to reporting on an audit of ERISA plan financial statements when an ERISA-permitted audit scope limitation exists, and if

not, how could it be revised;

will improve the auditor’s understanding of his or her responsibilities in a limited scope audit resulting in potential improvements in audit quality, and if not, why;

better describe management’s responsibilities for the financial statements, and if not, why;

provide sufficient clarity to users with respect to the auditor’s responsibilities and matters reported, and if not, why.


70 of the 108 comment letters specifically responded to the questions in Issue 2. Of the 70 who

responded, 15 supported the proposed SAS, and 17 supported the proposed SAS with concerns.

The task force viewed this as 46% of respondents supporting a new form of report for when the

ERISA-permitted audit scope limitation is imposed.

38 of the 108 comment letters did not support the new form of report. Many of those that did not

support the proposed SAS believe the auditor cannot express an opinion on the financial statements

as a whole when not auditing a vast majority of the assets. Many respondents believe that a

disclaimer of opinion is the appropriate opinion in such circumstances. Some of the respondents

did not believe the proposed SAS would improve transparency.

See Agenda Item 2B for the detailed comment letter responses.


Issue 2 # Responses out of 70 Percentage of those who

responded

Supportive 15 22%





October 2017 ASB Meeting

At the October 2017 ASB meeting the ASB directed the task force to continue to explore a new

form of report for an ERISA plan audit when there is an ERISA-permitted audit scope limitation.

The ASB asked the task force to also explore an alternative option to align the report to the existing

GAAS reporting framework.

Subsequent Task Force Discussions

Subsequent to the October ASB meeting, the task force held four teleconference meetings to

discuss various options for reporting under the ERISA-permitted special purpose audit. The task

force developed the following two models for the ASB’s consideration:

Option 1: A new form of ERISA-permitted special purpose audit report (see illustration 1

and illustrations 2-4 in appendix B of this discussion memorandum)

Option 2: A qualified opinion (under current GAAS) for the ERISA-permitted special

purpose audit (see illustration 5)

Option 1

Option 1 contains a new form of report that is not within the GAAS model today. This special

purpose report contains a section to describe the nature of the ERISA-permitted special purpose

audit and provides an auditor’s opinion that says that based on the audit and the procedures

performed with respect to the certification of the investment information that the auditor was

instructed not to audit:

The information in the financial statements and supplemental schedules that is subject to

the certification corresponds to the information certified as complete and accurate by an

institution that management determined qualified for the ERISA-permitted special purpose

audit

The information in the financial statements, other than that derived from the information

certified by the trustee (or custodian or insurance entity), has been audited in accordance

with GAAS and in the auditor’s opinion is presented in accordance with the applicable

financial reporting framework

The form and content of the information included in the supplemental schedules, other than

that derived from the information certified by the trustee (or custodian or insurance entity),

have been audited in accordance with GAAS and in the auditor’s opinion are presented in

conformity with DOL rules and regulations for reporting and disclosure under ERISA.

The reporting in option 1 would allow for the auditor to modify the standard opinion in accordance

with AU-C 705 (qualified, adverse, or disclaimer) as deemed appropriate in the circumstances due

to other issues with the engagement.



The following is a list of the illustrative reports in this discussion memorandum.

Option 1: ERISA-permitted Special Purpose Report

o Illustration 1—Option 1 (Standard Opinion)

The standard ERISA-permitted special purpose opinion would be modified, as needed,

when there are material misstatements of the financial statements or scope limitations.

Appendix B to this discussion memorandum contains the following illustrations that

demonstrate how this standard opinion may be modified:

o Illustration 2—Option 1 (Qualified Opinion)

o Illustration 3—Option 1 (Adverse Opinion)

o Illustration 4—Option 1 (Disclaimer of opinion)

Option 2: Current GAAS Model

o Illustration 5—Option 2 (Qualified Opinion under current GAAS)

ERISA-Permitted Special Purpose Reports

Illustration 1—Option 1 (Standard Opinion)

Circumstances include the following:

Management has elected to have an ERISA-permitted special purpose audit for a complete set of general purpose financial statements of a 401(k) plan.

The financial statements are not materially misstated and there are no scope limitations.

The financial statements are prepared in accordance with GAAP.

Independent Auditor’s Report

[Appropriate Addressee]

We have performed an audit of the accompanying financial statements and supplemental

schedules of ABC 401(k) Plan, subject to the special purpose audit as permitted by the

Employee Retirement Income Security Act of 1974 (ERISA). The financial statements

comprise the statements of net assets available for benefits as of December 31, 20X2 and

20X1, and the related statement of changes in net assets available for benefits for the year

ended December 31, 20X2, and the related notes to the financial statements. The

supplemental schedules comprise the [identify the title of schedules and period covered].

Management has elected the special purpose audit, as permitted by 29 CFR 2520.103-8

of the Department of Labor’s Rules and Regulations for Reporting and Disclosure under

ERISA.



Nature of the ERISA-Permitted Special Purpose Audit

Under the authority of section 103(a)(3)(C) of ERISA, the audit need not extend to

information related to assets held for investment of the plan (investment information)

prepared and certified by a bank or similar institution or insurance carrier which is

regulated and supervised and subject to periodic examination by a State or Federal agency

(qualified institution), provided that the statements or information regarding assets so held

are prepared and certified to by the bank or insurance carrier in accordance with 29 CFR

2520.103-5 and 29 CFR 2520.103-8.

Management has obtained certifications from the qualified institution as of December 31,

20X2 and 20X1, and for the year ended December 31, 20X2, stating that the investment

information, described in Note X to the financial statements, is complete and accurate.

Management’s Responsibility for the Financial Statements and the ERISA-Permitted

Special Purpose Audit

Management is responsible for the preparation and fair presentation of these financial

statements in accordance with accounting principles generally accepted in the United

States of America; this includes the design, implementation, and maintenance of internal

control relevant to the preparation and fair presentation of financial statements that are

free from material misstatement, whether due to fraud or error.

Management is also responsible for determining whether an ERISA-permitted special

purpose audit is permissible under the circumstances, including evaluating whether

the certification is prepared by a qualified institution, and

the certified investment information is complete and accurate.

Management’s election of the ERISA-permitted special purpose audit does not affect

management’s responsibility for the financial statements. Management is responsible for

determining whether the certified investment information is appropriately measured,

presented and disclosed in accordance with accounting principles generally accepted in

the United States of America.

Management is also responsible for maintaining a current plan instrument including all

plan amendments, administering the plan and determining that the plan’s transactions that

are presented and disclosed in the financial statements are in conformity with the plan’s

provisions, including maintaining sufficient records with respect to each of the

participants to determine the benefits due or which may become due to such participants.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our

audits. We conducted our audits in accordance with auditing standards generally accepted

in the United States of America. Those standards require that we plan and perform the

audit to obtain reasonable assurance about whether the financial statements are free from

material misstatement.



An audit involves performing procedures to obtain audit evidence about the amounts and

disclosures in the financial statements. The procedures selected depend on the auditor’s

judgment, including the assessment of the risks of material misstatement of the financial

statements, whether due to fraud or error. In making those risk assessments, the auditor

considers internal control relevant to the plan’s preparation and fair presentation of the

financial statements in order to design audit procedures that are appropriate in the

circumstances, but not for the purpose of expressing an opinion on the effectiveness of the

plan’s internal control. Accordingly, we express no such opinion. An audit also includes

evaluating the appropriateness of accounting policies used and the reasonableness of

significant accounting estimates made by management, as well as evaluating the overall

presentation of the financial statements.

An audit of financial statements of an employee benefit plan subject to ERISA includes

procedures to address the following matters when applicable to the plan, based on the

auditor’s assessment of risk and materiality.

[Placeholder: include listing of matters once determined as part of Issue 6 from the

exposure draft]

With respect to the certified investment information that management instructed us not to

audit, we did not assess the risks of material misstatement nor did we consider internal

control over the certified investment information. Our procedures were limited to the

following:

a. obtaining and reading the certification

b. inquiring of management about how it determined that the entity issuing the certification is a qualified institution and that the certified information is complete

and accurate

c. comparing the certified investment information with the related information presented and disclosed in the ERISA plan financial statements and supplemental

schedules

Accordingly, the objective of our ERISA-permitted special purpose audit is not to express

an opinion as to whether the financial statements are presented fairly, in all material

respects, in accordance with accounting principles generally accepted in the United States

of America [or other applicable financial reporting framework].

Other than with respect to the certified investment information, our audit procedures were

not limited for other amounts and disclosures in the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to

provide a basis for our ERISA-permitted special purpose audit opinion.

Auditor’s Opinion

In our opinion, in all material respects, based on our audit and on the procedures

performed with respect to the certification of the investment information that we were

instructed not to audit:



The information in the financial statements and supplemental schedules that is subject to the certification corresponds to the information certified as complete and

accurate by an institution that management determined qualified for the ERISA-

permitted special purpose audit

The information in the financial statements, other than that derived from the information certified by the trustee (or custodian)1, has been audited by us in

accordance with auditing standards generally accepted in the United States of

America and, in our opinion, is presented in accordance with accounting principles

generally accepted in the United States of America.

The form and content of the information included in the supplemental schedules, other than that derived from the information certified by the trustee (or custodian),

have been audited by us in accordance with auditing standards generally accepted in

the United States of America and, in our opinion, are presented in conformity with

the U.S. Department of Labor's Rules and Regulations for Reporting and Disclosure

under ERISA.

[Auditor’s signature]

[City and state report is issued]

[Date of the auditor’s report]

Option 2

Option 2 has been developed to illustrate what the auditor’s report would look like if the ERISA-

permitted special purpose audit was considered a qualified opinion under current GAAS.

Illustration 5—Option 2 (Qualified opinion under current GAAS)

Circumstances include the following:

Management has elected to have an ERISA-permitted special purpose audit for a complete set of general purpose financial statements of a 401(k) plan.

The financial statements are not materially misstated.

Due to the nature of the engagement, the auditor has determined that a qualified opinion is appropriate.

The financial statements are prepared in accordance with GAAP.

Independent Auditor’s Report

[Appropriate Addressee]

1 The words in this sentence may be modified when the assets are certified by an insurance entity.



Report on the Financial Statements fn 4

We have audited the accompanying financial statements of ABC 401(k) Plan, an

employee benefit plan subject to the Employee Retirement Income Security Act of 1974

(ERISA), subject to the special purpose audit as permitted by the Employee Retirement

Income Security Act of 1974 (ERISA). The financial statements comprise the statements

of net assets available for benefits as of December 31, 20X2 and 20X1, and the related

statement of changes in net assets available for benefits for the year ended December 31,

20X2, and the related notes to the financial statements. Management has elected the

special purpose audit, as permitted by 29 CFR 2520.103-8 of the Department of Labor’s

Rules and Regulations for Reporting and Disclosure under ERISA.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial

statements in accordance with accounting principles generally accepted in the United

States of America; this includes the design, implementation, and maintenance of internal

control relevant to the preparation and fair presentation of financial statements that are

free from material misstatement, whether due to fraud or error.

Management is also responsible for determining whether an ERISA-permitted special

purpose audit is permissible under the circumstances, including evaluating whether

the certification is prepared by a qualified institution, and

the certified investment information is complete and accurate.

Management’s election of the ERISA-permitted special purpose audit does not affect

management’s responsibility for the financial statements. Management is responsible for

determining whether the certified investment information is appropriately measured,

presented and disclosed in accordance with accounting principles generally accepted in

the United States of America.

Management is also responsible for maintaining a current plan instrument including all

plan amendments, administering the plan and determining that the plan’s transactions that

are presented and disclosed in the financial statements are in conformity with the plan’s

provisions, including maintaining sufficient records with respect to each of the

participants to determine the benefits due or which may become due to such participants.

Auditor’s Responsibility

fn 4 The subtitle "Report on the Financial Statements" is unnecessary when the second subtitle, "Report on Other

Legal and Regulatory Requirements," is not applicable. In this illustration, the heading "Report on the Financial

Statements" has been included even though there is no report on other legal and regulatory requirements included in

this report.



Our responsibility is to express an opinion on these financial statements based on our

audits. We conducted our audits in accordance with auditing standards generally accepted

in the United States of America. Those standards require that we plan and perform the

audit to obtain reasonable assurance about whether the financial statements are free from

material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and

disclosures in the financial statements. The procedures selected depend on the auditor’s

judgment, including the assessment of the risks of material misstatement of the financial

statements, whether due to fraud or error. In making those risk assessments, the auditor

considers internal control relevant to the plan’s preparation and fair presentation of the

financial statements in order to design audit procedures that are appropriate in the

circumstances, but not for the purpose of expressing an opinion on the effectiveness of the

plan’s internal control. fn 5 Accordingly, we express no such opinion. An audit also includes

evaluating the appropriateness of accounting policies used and the reasonableness of

significant accounting estimates made by management, as well as evaluating the overall

presentation of the financial statements.

An audit of financial statements of an employee benefit plan subject to ERISA includes

procedures to address the following matters when applicable to the plan, based on the

auditor’s assessment of risk and materiality.

[Placeholder: include listing of matters once determined]

With respect to the certified investment information that management instructed us not to

audit, we did not assess the risks of material misstatement nor did we consider internal

control over the certified investment information. Our procedures were limited to the

following:

a. obtaining and reading the certification

b. inquiring of management about how it determined that the entity issuing the certification is a qualified institution and that the certified information is complete

and accurate

c. comparing the certified investment information with the related information presented and disclosed in the ERISA plan financial statements and supplemental schedules

Other than with respect to the certified investment information, our audit procedures were

not limited for other amounts and disclosures in the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to

provide a basis for our qualified audit opinion.

fn 5 In circumstances when the auditor also has responsibility to express an opinion on the effectiveness of internal

control in conjunction with the audit of the financial statements, this sentence would be worded as follows: "In

making those risk assessments, the auditor considers internal control relevant to the plan’s preparation and fair

presentation of the financial statements in order to design audit procedures that are appropriate in the

circumstances." In addition, the next sentence, "Accordingly, we express no such opinion." would not be included.



Basis for Qualified Opinion

Under the authority of section 103(a)(3)(C) of ERISA, the audit need not extend to

information related to assets held for investment of the plan and related income

(investment information) prepared and certified by a bank or similar institution or

insurance carrier which is regulated and supervised and subject to periodic examination

by a State or Federal agency (qualified institution), provided that the statements or

information regarding assets so held are prepared and certified to by the bank or insurance

carrier in accordance with 29 CFR 2520.103-5 and 29 CFR 2520.103-8.

Management has obtained certifications from the qualified institution as of December 31,

20X2 and 20X1, and for the year ended December 31, 20X2, stating that the investment

information, described in Note X to the financial statements, is complete and accurate and

has instructed us not to audit the certified investment information.

Accordingly, we did not audit the investment information covered by the certification.

However, we did perform limited procedures on this information as further described in

the Auditor’s Responsibility section in connection with obtaining audit evidence to

provide a basis for our opinion.

Qualified Opinion

In our opinion, except for the possible effects of the matter described in the Basis for

Qualified Opinion paragraph, the financial statements referred to above present fairly, in

all material respects, the net assets available for benefits of the Plan as of December 31,

20X2 and 20X1, and the changes in net assets available for benefits for the year ended

December 31, 20X2, in accordance with accounting principles generally accepted in the

United States of America.

Other Matter Relating to the Supplemental Schedules Required by ERISA

Our audits were conducted for the purpose of forming an opinion on the financial

statements as a whole. The supplemental schedules of [identify title of schedules and

period covered] are presented for the purposes of additional analysis and are not a required

part of the financial statements but are supplementary information required by the

Department of Labor’s Rules and Regulations for Reporting and Disclosure under the

Employee Retirement Income Security Act of 1974. Such information is the responsibility

of the Plan’s management and was derived from and relates directly to the underlying

accounting and other records used to prepare the financial statements. The information

has been subjected to the auditing procedures applied in the audits of the financial

statements and certain additional procedures, including comparing and reconciling such

information directly to the underlying accounting and other records used to prepare the

financial statements or to the financial statements themselves, and other additional

procedures in accordance with auditing standards generally accepted in the United States

of America.



Our procedures with respect to the certified investment information encompassed in the

supplemental schedules include those described in the Auditor’s Responsibility section.

In forming our opinion on the supplemental schedules we evaluated whether the

information in the supplemental schedules, including its form and content, is presented in

conformity with the Department of Labor’s Rules and Regulations for Reporting and

Disclosure under ERISA.

In our opinion, except for the possible effects on the supplementary information of the

matter described in the Basis for Qualified Opinion section, the information is fairly stated

in all material respects in relation to the financial statements as a whole, and the form and

content is presented in conformity with the Department of Labor’s Rules and Regulations

for Reporting and Disclosure under ERISA.

_________________

[Auditor’s signature]

[Auditor’s city and state]

[Date of the auditor’s report]


3. Does the ASB have a preference between options 1 and 2 for the form and content of the ERISA-permitted special purpose report?

Issue 3: Reporting on ERISA Required Supplemental Schedules

Paragraphs 117-118 of the exposure draft

Paragraphs 117-118 of the exposure draft and related application material address requirements

when reporting on the ERISA supplemental schedules. While the exposure draft did not ask a

specific question relating to this section, comments were received relating to these paragraphs that

the task force considered when developing the ERISA-permitted special purpose report

illustrations.

The exposure draft requires the auditor to consider the requirements in the proposed SAS rather

than paragraph .09 of AU-C section 725, Supplementary Information in Relation to the Financial

Statements as a Whole when reporting on the ERISA required supplemental schedules in

accordance with AU-C section 725. The proposed SAS added incremental reporting to that in AU-

C section 725 relating to the procedures performed and an opinion on the form and content of the

supplemental schedules in accordance with DOL rules and regulations.

Agenda Item 2C contains the comment letter comments relating to paragraphs 117-118 that were

considered by the task force.



At the October 2017 ASB meeting the ASB considered proposed amendments to AU-C section

725 to address differences with PCAOB AS 2701, Auditing Supplemental Information

Accompanying Audited Financial Statements. The ASB noted that the primary consideration in

developing PCAOB 2701 related to the PCAOB’s oversight of brokers and dealers in securities.

After considering the PCAOB’s objective and evaluating the sufficiency of the procedures and

reporting in existing GAAS, the ASB concluded that no amendments to AU-C section 725 are

necessary in relation to AS 2701.

The task force considered the comments received on these paragraphs and the conclusions reached

by the ASB at the October ASB meeting and continues to believe that because the supplemental

schedules accompanying the ERISA plan financial statements are required by ERISA, there is

support for the additional reporting in the report about these supplemental schedules.

The task force recommends that the proposed SAS distinguish between the ERISA required

supplemental schedules and other supplementary information that may be included in the ERISA

plan financial statements. In addition, the task force continues to believe that the form and content

opinion provided for in the ERISA-permitted special purpose report should be included in all

ERISA plan audit reports regardless of the type of audit being performed.

Accordingly, the task force is proposing the following revisions to paragraphs 117-118 (and related

application material) for the ASB’s consideration.

(Note: the following table has been marked to reflect changes from the exposure draft).

Reporting on ERISA Required

Supplemental Schedules

Reporting on ERISA Required Supplemental

Schedules (Ref. par. 117–118)

117. ERISA requires that certain supplemental

schedules accompany the ERISA plan financial

statements if applicable. When(hereinafter

referred to as ERISA required supplemental

schedules) if applicable. In addition, ERISA

plan financial statements may have

accompanying supplementary information that

is not required by ERISA. Except as discussed

in paragraph 121, when auditing ERISA plan

financial statements, the auditor should report

on whether suchthe ERISA required

supplemental schedules are fairly stated, in all

material respects, in relation to the financial

statements as a whole, in accordance with AU-

C section 725. (Ref. par. A127–A128725 and

paragraphs 119-120 of this proposed SAS. AU-

A127. According to 29 CFR 2520.103-10 the

administrator of a plan filing an annual report

pursuant to ERISA section 2520.103-1(a)(2)

should, as provided in the instructions to the Form

5500 “Annual Return/Report of Employee Benefit

Plan” include as part of the annual report certain

separate financial schedules.

A128. Such schedules are required to be attached

to the Form 5500 filing.1 These schedules are

covered by the auditor’s report on whether such

supplemental schedules are fairly stated, in all


statements as a whole, in accordance with AU-C

section 725. The Form 5500 is updated annually

1 Appendix A of the AICPA Audit and Accounting Guide Employee Benefit Plans provides a listing of the required

ERISA schedules.



C section 725 addresses the performance

requirements as well as the form and content of

the report on supplementary information in

relation to the financial statements as a whole.

AU-C section 725 requires the auditor to report

on the supplementary information in either (a)

an other-matter paragraph in accordance with

AU-C section 706, or (b) a separate report on

the supplementary information. (Ref. par.

A127)

and therefore the Form 5500 contains the most

current information about the required schedules.

118. When the auditor is also engaged to report

on supplementary information accompanying

the ERISA plan financial statements that is not

required by ERISA, AU-C section 725 applies.

(Ref. par. A128)

A128. The requirements in paragraphs 119-120

only apply to the ERISA required supplemental

schedules. When supplementary information that

is not required by ERISA accompanies the

financial statements the auditor may also be

engaged to report on whether the supplementary

information not required by ERISA is fairly stated

in all material respects in relation to the financial

statements as a whole. In such circumstances, the

auditor is required to follow the requirements in

AU-C section 725 in its entirety and the

requirements in paragraphs 119-120 of this

proposed SAS do not apply. This may result in the

auditor’s report including an other-matter

paragraph relating to the ERISA required

supplemental schedules in accordance with

paragraphs 119-120 of this proposed SAS and a

separate other-matter paragraph relating to the

other supplementary information accompanying

the ERISA plan financial statements presented in

accordance with AU-C section 725.

118. AU-C section 725 addresses the

performance requirements as well as the form

and content of the report on supplementary

information in relation to the financial

statements as a whole. When an entity presents

the supplementary information with the ERISA

plan financial statements, AU-C section 725

requires the auditor to report on the

supplementary information in either (a) an

other-matter paragraph119. When reporting on

the ERISA required supplemental schedules in

accordance with AU-C section 706, or (b) in a



separate report on the supplementary

information. When performing an audit of

ERISA plan financial statements,725, the

reporting elements discussed in paragraph .09

of AU-C section 725 should be replaced with

the following:

a. A statement that the audit was

conducted for the purpose of forming

an opinion on the financial statements

as a whole

b. A statement that the supplementary

information issupplemental

schedules are presented for purposes

of additional analysis and isare not a

required part of the financial

statements but isare supplementary

information required by the

Department of Labor’s Rules and

Regulations for Reporting and

Disclosure under the Employee

Retirement Income Security Act of

1974

c. A statement that the supplementarysuch

information is the responsibility of

management and was derived from,

and relates directly to, the underlying

accounting and other records used to

prepare the financial statements

d. A statement that the supplementary

information has been subjected to the

auditing procedures applied in the

audits of the financial statements and

certain additional procedures,

including comparing and reconciling

such information directly to the

underlying accounting and other

records used to prepare the financial

statements or to the financial

statements themselves, performing

procedures to test the completeness

and accuracy of the information

presented in the supplemental



schedules, and other additional

procedures, in accordance with

auditing standards generally accepted

in the United States of America.

e. When reporting on an audit of

ERISA plan financial statements when

the ERISA-permitted audit scope

limitation is imposed, the paragraph in

0d. should be revised to reflect the use

of certification of investment

information as part of the audit.

Further, the report should include a

statement that the auditor’s procedures

with respect to the certified investment

information included in the

supplemental schedules were limited to

those procedures described in the

Auditor’s Responsibility (Including

Responsibility for the Certified

Investment Information) section. (Ref.

par. A129)

A129. Paragraph 118d may be revised as follows:

“The information has been subjected to the

auditing procedures applied in the audits of the

financial statements and the use of the certification

of the assets held for investment of the plan, which

we were not required to audit.”

fe. A statement that in forming the

opinion on the supplemental

schedules, the auditor evaluated

whether the supplementary

informationsupplemental schedules,

including its their form and content, is

presented in conformity with the

Department of Labor’s Rules and

Regulations for Reporting and

Disclosure under the Employee

Retirement Income Security Act of

1974.

Errors, Omissions, or Inconsistency of

Supplementary InformationSupplemental

Schedules Required by the DOL

gf. If the auditor issues an unmodified

opinion on the ERISA plan financial

statements or has issued an opinion

with the ERISA-permitted audit

scope limitation, as permitted in

paragraph 106,, and the auditor has

A130.129. When the auditor concludes, on the

basis of the procedures performed, that the

supplementary information issupplemental

schedules are materially misstated in relation to the

financial statements as a whole, AU-C section 725

requires the auditor to discuss the matter(s)matters



concluded that the supplementary

information issupplemental

schedules are fairly stated, in all

material respects, in relation to the

financial statements as a whole, a

statement that, in the auditor’s

opinion, the supplementary

information in the accompanying

schedules is fairly stated, in all

material respects, in relation to the

financial statements as a whole, and

the form and content are presented in

conformity with the Department of

Labor’s Rules and Regulations for

Reporting and Disclosure under the

Employee Retirement Income

Security Act of 1974. (Ref. par.

A130129–A133132)

with management and propose appropriate

revision of the supplementary

informationsupplemental schedules. If

management does not revise the supplementary

informationsupplemental schedules, the auditor is

required to modify the auditor’s opinion on the

supplemental schedules and describe the

misstatement in the auditor’s report. If a separate

report is being issued on the supplementary

informationsupplemental schedules, the auditor is

required to withhold the auditor’s report on the

supplementary informationsupplemental

schedules. 2

A131.130. During the audit, the auditor may

become aware of a departure from DOL

requirements relating to the supplementary

informationsupplemental schedules that is not also

a departure from the applicable financial reporting

framework. In such circumstances, the auditor

may consider including an additional

communication in the auditor’s report (emphasis-

of-matter or other-matter paragraph), in

accordance with AU-C section 706.

A132.131. If a material party in interest3

transaction that is not disclosed in the

supplemental schedule is also considered a related

party transaction and if that transaction is not

properly disclosed in the notes to the ERISA plan

financial statements, the auditor is required to

modify the auditor’s opinion in accordance with

AU-C section 705.

A133.132. When the auditor concludes that the

supplemental schedules do not contain all required

information or contain information that is

inaccurate or inconsistent with the ERISA plan

financial statements, and the omission or

inconsistency is not considered a material

misstatement, the auditor may decide to include an

additional paragraph in the report on the

2 Paragraph .13 of AU-C section 725.

3 Party in interest is defined in section 3(14) of ERISA.



supplemental schedules to disclose the omission or

inconsistency of the information.4

hg. If the auditor issues a qualified

opinion on the ERISA plan financial

statements and the qualification has

an effect on the supplementary

informationsupplemental schedules,

a statement that, that in the auditor’s

opinion, except for the possible

effects on the supplementary

informationsupplemental schedules

of (refer to the paragraph in the

auditor’s report explaining the

qualification), suchthe information in

the accompanying schedules is fairly

stated, in all material respects, in

relation to the financial statements as

a whole.

120. If the auditor issues an adverse opinion or

a disclaimer of opinion, the auditor is precluded

from expressing an opinion on the supplemental

schedules. When permitted by law or

regulation, the auditor may withdraw from the

engagement to report on the supplemental

schedules. If the auditor does not withdraw, the

reporting elements in paragraph .11 of AU-C

section 725 should be replaced with the

following:

a. If the auditor’s report contains an adverse opinion, a statement that the

audit was conducted for the purpose of

forming an opinion on the financial

statements as a whole; or if the auditor’s

report contains a disclaimer of opinion,

a statement that the auditor was engaged

for the purpose of forming an opinion on

the financial statements as a whole.

b. A statement that the supplemental schedules are presented for the purposes

4 Chapter 11 of the AICPA Audit and Accounting Guide Employee Benefit Plans provides guidance for how to

report when there is an error, omission, or inconsistency in the supplementary information.



of additional analysis and are not a

required part of the financial statements

but are supplementary information

required by the Department of Labor’s

Rules and Regulations for Reporting

and Disclosure under ERISA

c. A statement that because of the significance of the matter described

above in [refer to the Basis for Adverse

Opinion or Basis for Disclaimer of

Opinion sections, as applicable], it is

inappropriate to and the auditor does not

express an opinion on the supplemental

schedules.

i. When reporting on an audit of ERISA plan

financial statements when the121. Because the

DOL requires the auditor to offer an opinion on

the supplemental schedules, when management

elects to have an ERISA-permitted special

purpose audit scope limitation is imposed, and

the auditor has concluded that the

supplementary information is fairly stated, in all


statements as a whole, a statement thatthe

auditor should include in the standard ERISA-

permitted report a statement that the form and

content of the information included in the

supplemental schedules, other than that derived

from the information certified by the trustee (or

custodian), have been audited by the auditor in

accordance with auditing standards generally

accepted in the United States of America and,

in the auditor’s opinion, and based on the

auditor’s use of the certification of the

investment information which the auditor was

not required to audit, the supplementary

information is fairly stated, in all material

respects, in relation to the financial statements

as a whole and is in conformity with the DOL

are presented in conformity with the U.S.

Department of Labor’s Rules and Regulations

for Reporting and Disclosure under the

Employee Retirement Income Security Act of

1974.ERISA.



122. When the auditor is engaged to perform an

ERISA-permitted special purpose audit the

auditor’s report does not require an opinion on

the supplemental schedules in accordance with

in AU-C section 725; rather the opinion on the

supplemental schedules is required to be made

in accordance with paragraph 121 of this

proposed SAS. Unless the auditor is specifically

engaged to perform the procedures required by

AU-C section 725, in order to provide the

opinion in paragraph 121 the auditor should

read the information in the supplemental

schedules in order to identify material

inconsistencies, if any, with the audited

financial statements. The auditor may also need

to perform certain audit procedures the auditor

deems necessary to provide an opinion that the

form and content of the information included in

the supplemental schedules, other than that

derived from the information certified by a

qualifying institution, are presented in

conformity with the DOL’s rules and

regulations for reporting and disclosure under

ERISA. (Ref. par. A133)

A133. Paragraphs 36-48 provide guidance relating

to the Form 5500 that can be used when the auditor

identifies material inconsistencies, or if on reading

the supplemental schedules the auditor becomes

aware of an apparent material misstatement of fact.


4. Does the ASB continue to support incremental reporting requirements specific for ERISA plans that differ from other entities following AU-C section 725 when reporting on the ERISA

required supplemental schedules?

5. Does the ASB continue to support including the form and content opinion as part of the other-matter paragraph relating to the supplemental schedules to retain consistency with the ERISA

permitted special purpose audit?



Issue 4: Required Emphasis-of-Matter Paragraphs


Issue 4—Required Emphasis-of-Matter Paragraphs

Respondents were asked to consider whether the situations identified are appropriate for

requiring the inclusion of emphasis-of-matters paragraphs in the auditor’s report.

Respondents were also asked to consider whether there are additional situations that

should result in a required emphasis-of-matter paragraph.


62 of the 108 comment letters specifically responded to Issue 4. Of the 62 who responded, 18

supported the proposed SAS and 4 supported the proposed SAS with concerns. The task force

viewed this as 35% showing support for requiring an emphasis-of-matter paragraph in the auditor’s

report. 40 of the respondents (65%) did not support the proposed SAS. Many of the respondents

believe requiring an emphasis-of-matter paragraph in the auditor’s report takes auditor judgment

away and some suggested the proposed SAS require the auditor to consider including such a

paragraph.

See Agenda Item 2D for the detailed comment letter responses.


Issue 4

(par. 116)

# responses out of 62 Percentage of those who

responded

Supportive 18 29%



Task Force Discussions

The task force discussed the comments received relating to required emphasis-of-matter

paragraphs during a teleconference meeting. The task force noted that while 65% did not support

a requirement to include the EOM paragraph, many of the respondents did support the auditor

considering whether to include an EOM paragraph in the auditor’s audit based upon the auditor’s

professional judgment and supported including application material to remind auditors about EBP

specific topics to consider in addition to those already listed in appendix B to AU-C section 706.

The task force considered two views as a way forward relating to including EOM paragraphs in

the auditor’s report, as follows:



View 1— remove paragraph 116 and related application material from the proposed

SAS and remain silent in the proposed SAS as to specific areas to consider. Under this

view the EBP AAG is considered a more appropriate place for further guidance about

EBP specific areas that the auditor may consider for an EOM paragraph. The task force

noted that paragraph 8 of the proposed SAS references AU-C section 706 as the

standard that addresses additional communications in the auditor’s report.

View 2—remove paragraph 116 and related application material from the proposed

SAS and include application material to paragraph 8 to remind auditors about areas

specific for employee benefit plans to be considered. See proposed edits below.

The task force had mixed views. Some members of the task force believe the EBP AAG is

sufficient to provide guidance on considerations relating to including an EOM paragraph in the

auditor’s report and the proposed SAS should remain silent. In addition, those members of the

task force did not see a compelling reason for GAAS guidance on inclusion of an EOM paragraph

on ERISA plan audits to differ from that on other audits. Other members of the task force believe

that it is important to remind auditors of their responsibilities relating to the inclusion of EOM

paragraphs and that including specific considerations as application material in the proposed SAS

would help highlight for auditors those areas in a more prominent way than the EBP AAG.

The following is possible application material to be included with paragraph 8 to illustrate view 2.

The areas listed have been compiled from the comments but have not been fully vetted by the task

force yet. The task force is asking the ASB for direction on whether or not to include application

material in the proposed SAS relating to emphasis of matter paragraphs.

View 2 – added application material to paragraph 8

8. AU-C section 705, Modifications to the

Opinion in the Independent Auditor’s Report

(AICPA, Professional Standards), and AU-C

section 706, Emphasis-of-Matter Paragraphs

and Other-Matter Paragraphs in the

Independent Auditor’s Report (AICPA,

Professional Standards), address how the form

and content of the auditor’s report are affected

when the auditor expresses a modified opinion

(a qualified opinion, an adverse opinion, or a

disclaimer of opinion) or includes an emphasis-

of-matter paragraph or other-matter paragraph

in the auditor’s report. As discussed in

paragraph 34 of this proposed SAS, when there

are other limitations on the scope of the audit,

beyond what is permitted by ERISA section

103(a)(3)(C), or when the auditor has identified

material misstatements of the ERISA plan

financial statements, the auditor should modify

A11. AU-C section 706 requires the auditor to

include an emphasis-of-matter paragraph in the

auditor’s report when the auditor considers it

necessary to draw users’ attention to a matter or

matters presented or disclosed in the financial

statements that are of such importance that they are

fundamental to users’ understanding of the

financial statements.

The inclusion of an emphasis-of-matter paragraph

in the auditor’s report is not a substitute for either

the auditor expressing a modified opinion when

required by the circumstances of a specific audit

engagement in accordance with AU-C section 705,

or disclosures in the financial statements that the

applicable financial reporting framework requires

management to make.

A12. Appendix B in AU-C section 706, “List of

AU-C Sections Containing Requirements for



the auditor’s opinion in accordance with AU-C

section 705. (Ref. par. A63)

Emphasis-of-Matter Paragraphs” identifies AU-C

sections containing specific requirements for the

auditor to include an emphasis-of-matter

paragraph in the auditor’s report.

A13. In addition to the required emphasis-of-

matter paragraphs listed in exhibit B of AU-C

section 706, and the examples in paragraph .A2 of

AU-C section 706, the following are examples of

circumstances in which the auditor may consider it

necessary to include an emphasis-of-matter

paragraph in the auditor’s report on ERISA plan

financial statements when the matter is

appropriately presented or disclosed in the

financial statements:

a. There are significant plan amendments that

affect net assets or benefit obligations.

b. Minimum funding waivers were granted by the

IRS, or if a request for waiver is pending before

the IRS.

c. There were significant changes in the nature of

the plan, for example, a plan merger or spin-off.

d. The plan has entered into nonroutine significant

prohibited transactions that require correction

e. Plan terminations, partial termination, or hard or

soft freeze

f. Status and terms of frozen DB plan

g. Shares owned by ESOP are material to the

ESOPs total plan assets

h. Plan is significantly underfunded

i. For multiemployer plans, the funded status of the

plan is critical, or critical and declining, within the

meaning of the Pension Protection Act of 2006,

and whether the plan is making progress on a

Funding Improvement or Rehabilitation Plan,

based on information provided by the actuary.



j. For multiemployer plans, a mass withdrawal,

withdrawal of a significant number of employers,

or withdrawal of a major contributing employer

k. Plan assets include a significant percentage of

alternative or hard-to-value investments whose fair

values have been estimated in the absence of a

readily determinable fair value

l. any filing (actual or in process) under the IRS

Voluntary Correction program


6. Does the ASB agree that EOM paragraphs should not be required to be included in the auditor’s report on ERISA plan financial statements?

7. If so, does the ASB support view 1 to exclude discussion about EOM paragraphs in the proposed SAS or view 2 to remove the separate section on EOM paragraphs from the proposed

SAS and include application material to paragraph 8 that describes circumstances for the

auditor’s consideration relating to EOM paragraphs?



Issue 5: Required Procedures Relating to the Form 5500


Issue 7—Required Procedures Relating to the Form 5500

Respondents were asked for their views about whether the proposed procedures in

paragraphs 36–48 of the proposed SAS would achieve the objective of increased

consistency with respect to identifying information in the Form 5500 that may be relevant

to the audit of ERISA plan financial statements, and if not, why?


63 of the 108 comment letters specifically responded to Issue 7. Of the 63 who responded, 33

supported the proposed SAS and 16 supported the proposed SAS with concerns. Those with

concerns predominantly recommended a new requirement be added that would require the Form

5500 to be read prior to the issuance of the auditor’s report. The task force viewed this as 78%

support for including AU-C section 720 requirements in the proposed SAS. 14 respondents did not

support the proposed SAS primarily because they believe it extends the auditor’s responsibilities

too far.

See Agenda Item 2E for the detailed comment letter responses.


Issue 7 # responses out of 63 Percentage of those who

responded

Supportive 33 52%



Task Force Discussions

The task force discussed the comments received relating to the required procedures for the Form

5500. 78% of respondents supported the requirements in the proposed SAS relating to the Form

5500, stating that the proposed guidance will increase consistency and execution of procedures

performed with respect to the Form 5500. Some of the respondents who did not support including

these required procedures as part of the proposed SAS believe that these requirements extend the

scope of the auditor’s responsibilities beyond what was intended by ERISA section 103(a)(3).

While the task force did not have an opportunity to discuss the content of paragraphs 36-48 at

length, they did discuss a few threshold questions on this topic and are asking for direction from

the ASB, as follows:



1. Should the proposed SAS continue to address procedures relating to the Form 5500?

2. Should the proposed SAS include a new requirement that precludes the auditor from

issuing the auditor’s report without having obtained and reviewed a draft of the Form 5500?

3. Should the section of the proposed SAS relating to the Form 5500 (paragraphs 36-48) be

aligned with the proposed SAS The Auditor’s Responsibilities Relating To Other

Information Included In Annual Reports or should the proposed SAS retain the concepts

from current AU-C section 720?

Question 1

The task force strongly believes the proposed SAS should continue to include procedures relating

to the Form 5500, which is supported by the 78% of respondents who supported this section. Some

of the respondents that did not support these required procedures believe that these requirements

extend the scope of the auditor’s responsibilities beyond what was intended by ERISA section

103(a)(3). The task force noted that some respondents believe the auditor should not be responsible

for information contained in the Form 5500 that is not related to financial reporting. The task force

noted that a material misstatement of fact need only be identified when upon reading the Form

5500 for material inconsistencies the auditor becomes aware of an apparent material misstatement

of fact. The task force does not believe this goes beyond the auditor’s responsibilities under AU-

C section 720.


8. Does the ASB agree that the proposed SAS should retain requirements relating to the Form 5500?

Question 2

Many of the respondents believe the proposed SAS should preclude the issuance of an audit report

before a draft of the Form 5500 is made available to the auditor and require the terms of the

engagement to reflect this agreement. Currently, the proposed SAS does not have such a

requirement and provides guidance for material inconsistencies identified after the report release

date. The task force discussed the need for the auditor to review a draft of the Form 5500 prior to

the issuance of the auditor’s report, particularly in light of the fact that 29 CFR 2520-103-1(3) of

the DOL’s Rules and Regulations for Reporting and Disclosure under ERISA requires the notes

to the financial statements to include an explanation of the differences, if any, between the

information contained in the separate financial statements and the assets, liabilities, income,

expenses and changes in the net assets as required to be reported on the Form 5500. Without

reviewing a draft of the Form 5500 the task force was unsure how the auditor would be able to

ascertain whether such disclosure has been properly made.


9. Does the ASB believe the task force should include a new requirement for the auditor to obtain and read a copy of the Form 5500 prior to the issuance of the auditor’s report?



Question 3

The content in paragraphs 36-48 of the proposed SAS is based on extant AU-C section 720. The

task force discussed that the current exposure draft of proposed SAS The Auditor’s Responsibilities

Relating To Other Information Included In Annual Reports (OI SAS) changes extant AU-C section

720 and discussed whether this proposed SAS should retain extant AU-C section 720 or should be

aligned with the terminology and performance requirements in the proposed OI SAS. The task

force is looking for views from the ASB on this topic.


10. Does the ASB believe the content in the proposed SAS should be aligned with the terminology and performance requirements of the proposed OI SAS once it is completed?



Appendix A – Excerpts from AICPA Audit and Accounting Guide

Employee Benefit Plans

The following are excerpts from the prior EBP AAGs to highlight the changes that have evolved

over time (emphasis added to highlight changes made over time).

Excerpt from 1991 Audit and Accounting Guide

Limited-Scope Auditing Procedures

7.45 As discussed in paragraph 13.22, the audit may be restricted with respect to assets

held and transactions executed by banks, similar institutions, or insurance carriers that are

regulated, supervised, and subject to periodic examination by a federal or state agency.

Certain data furnished and certified by a bank, a similar institution, or an insurance carrier

are based on information supplied by the plan administrator. Accordingly, the auditor

should satisfy himself or herself that the amounts reported by the trustee as being received

from or disbursed at the direction of, the plan administrator or other authorized party have

been properly determined in accordance with the terms of the plan and that the information

included in the financial statements and schedules has been presented in compliance with

the DOL Rules and Regulations for Reporting and Disclosure under ERISA. If the auditor

is precluded from performing these procedures, it will ordinarily be necessary to disclaim

an opinion on the financial statements in accordance with SAS No. 58, paragraphs 70

through 72, because of the limitation on the scope of the audit, and it would not be

appropriate for the auditor to comment on whether the financial statements and schedules

are presented in compliance with ERISA and applicable DOL regulations. In such

circumstances, the auditor should also read the financial statements and accompanying

notes to determine that the information provided by the trustee is accurately included

therein.

Excerpt from 1994 Audit and Accounting Guide

Limited-Scope Auditing Procedures

7.45 As discussed in paragraphs 5.02 and 13.23 the audit may be restricted with respect to

assets held and transactions executed by certain institutions. In an ERISA limited scope

audit, the auditor can limit the scope of testing on any investment information prepared and

certified by a qualified trustee or custodian. The auditor has no responsibility to obtain an

understanding of the internal control structure maintained by the certifying institution over

assets held and transactions executed for the Plan or to asse

agenda item 2 · 2021. 1. 16. · agenda items presented item 2 — discussion memorandum and...

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